Tax day is Monday, April 15, 2019. Do you know where your money is?
Just a few more weeks remain to file your federal income taxes. This is the first year Americans will be filing their taxes under the new Tax Cuts and Jobs Act of 2017. This bill lowered tax rates, doubled the standard deduction, and eliminated some popular tax reductions -- including personal exemptions and the SALT (state and local tax) deduction. Confusion over the new withholdings tables have left some taxpayers with a bill this year instead of a deduction.
If your bill seems a little high, there are a couple of things you can do. First, go through and look for deductible items you may have missed. The charitable deduction limit was increased from 50 to 60 percent, so you might have a higher deduction. Did you have a surgery or an illness in 2018? You can deduct the eligible expenses in excess of 7.5 percent of your AGI, or adjusted gross income.
Another big category when it comes to deductions is retirement savings. If you’re not eligible for a retirement savings account at work or you are an independent contractor, you can deduct the contributions you make. Taxpayers have until Apr. 15, 2019, to contribute to an IRA or Roth IRA for the 2018 tax year. The contribution limits are subject to each taxpayer’s individual income and familial status. Your tax preparer or financial planner can help you determine those limits.
If you’re still coming up short, don’t panic! The IRS can work with you on a payment plan keeping you from incurring additional interest and penalties, says Jason Parfitt, C.P.A. of Parfitt Consulting.
“The best rule of thumb is, file on time and be open and honest about your situation with the IRS. If necessary, file an extension and begin saving for an eventual payment.”
Finally, it’s a good idea to plan ahead for next year to avoid headaches. Your tax bill can be determined by more than just earnings from your job. Homeownership, investment, and pension income or a side gig can all affect your final bill.
“Even if you believe you are doing everything correct, it doesn’t hurt to have a professional review your overall financial situation. With the new laws in effect from the Tax Cuts and Jobs Act, many people saw their withholdings reduced in 2018. This allowed for greater take-home pay throughout the year, but a reduced refund or a larger tax bill at the end of the year,” says Parfitt.
A professional review will also aid you when making decisions in the future, like buying or refinancing a home, expanding your business, or diversifying investments.
Have you done your taxes yet? Did the new laws change your outcome for the better or worse? Tell us in the comments!